The Complete CFO Handbook

Chapter 3. Types of Debt Financing

Agenda

Item 1	Explain what a debt obligation is.
Item 2	Describe the general features of debt obligations.
Item 3	Explain what a term loan is and the features of a term loan.
Item 4	Explain what a syndicated bank loan is.
Item 5	Discuss the features of a corporate note/bond (denomination, term to maturity, interest rate, security, seniority, provisions for retirement of debt, and convertibility) and how they are issued.
Item 6	Explain the factors a CFO considers in designing a bond issue.
Item 7	Distinguish between a corporate bond and a medium‐term note.
Item 8	Identify the different forms of short‐term financing.
Item 9	Explain what off‐balance‐sheet financing is and how such transactgions are handled for financial and SEC reporting.

In a debt financing, a corporation receives money in exchange for a promise to repay the lender (creditor) the amount borrowed at some future time. We refer to the indebtedness between a corporation and a lender as a loan. If the borrower issues a security to represent the indebtedness, we usually refer to the securities issued as notes and bonds.

The cost of debt arrangements is not simply the interest rate on the borrowed funds. There are fees that typically have to be paid. In the case of loans, this might include commitment fees. In the issuance of notes or bonds, the fees would include legal fees, the cost of registering the securities with the Securities and Exchange Commission (SEC), and the spread charged by investment bankers ...